Diesel demand projected to strengthen in China, remain weak in India
By ERIC YEP
China's diesel consumption may strengthen in the next few months on agricultural demand, but India's diesel demand is unlikely to pick up significantly with monsoon rains expected on time this year, analysts said.
While the fuel demand situation in India and China is quite different, both diesel-guzzling countries are expected to temper diesel exports further, which will reduce oversupply and support product differentials in Asia's middle distillates market.
India and China are major producers and consumers of diesel, a fuel vital to economic growth due to its wide range of uses, and slowing domestic demand had resulted in large volumes flooding regional markets.
In the last six months, China's diesel exports were at their highest since 2010, averaging around 90,000 bpd due to weak industrial activity and to reduce high product inventories built up last year.
"The latest data suggest that destocking efforts by Chinese refiners have worked to reduce inventories back to seasonal levels," analyst Sijin Cheng at Barclays said in a note.
She said while some refineries were under scheduled maintenance from mid-April to mid-May, others cut diesel yields to their lowest levels in 10 years, and now overall demand appears to be growing steadily.
"Agricultural demand for diesel will see a boost from wheat harvesting, which began in late May and will peak in mid-to-late June," Ms. Cheng said, adding that refinery runs may rise as refineries restart and ramp up to meet this agricultural demand.
Diesel demand in India, however, remains dismal.
India's diesel exports were high since late last year, due to weak domestic demand, new refining capacity and high run rates.
The market was betting on India's diesel consumption to surge in the summer months, to counter expected power shortages, but this year's summer demand has been weaker than expected due to slower economic activity.
"[Diesel] demand is not so great, just ok. In fact, gasoline demand is better for now," a Mumbai-based trader said.
"Faced with sluggish domestic demand and weaker export margins, we expect that Indian refiners could likely opt to ease both runs and exports over the next few months," consulting firm Facts Global Energy said in a note.
It said this year's monsoon season is expected to be normal, which will be bearish for Indian diesel demand over the next three to four months. Delays in the arrival of the monsoon usually result in extended summer months, shortages of hydroelectric power and increased fuel demand for irrigation.
Dow Jones Newswires
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